How much time should you spend on strategy?

We see many business owners, who work tirelessly in their businesses and are excellent at what they do, neglect their strategy and execution plans. It’s the old adage: I’m too busy working in my business to work on it.

Whilst we’re here to support you when unexpected hiccups occur, we can do so more effectively if we help you get ahead of risks and opportunities in your business.

Time spent working – is not created equal.
There’s a misconception that being busy is automatically being effective.

Some hours are highly productive… which is great… provided we’re being productive on the right things, i.e. not fighting avoidable fires, dealing with HR issues or performing avoidable rework (etc. etc.).

Planning helps us put out fires before they cause damage while capitalising on the opportunities that we can only see when we look up. In other words, sharpening the axe before cutting the tree will make for a much easier task. Cutting the right tree helps too.

Time spent refining your strategy and planning your execution will pay back massively when you execute your plans operationally in your business. Popping up for regular planning helps keep your business calibrated.

So, how much time should you spend finetuning your strategy and execution?
We believe best practice for business starts with us providing a 60-minute complimentary meeting.

Then, we can support you to create your annual Business Plan and undertake annual forecasting – two critical services to capture and support the achievement of effective and realistic goals.

Lastly, we recommend ongoing check-ins with us (at least quarterly) to report back and ensure accountability across achieving your 90-day goals and actions, as well as to recalibrate and set new ones. These recurring services are highly effective for our business clients.

This commitment is roughly a total of 20 hours per year (including travel, if any) or just 1% of your working time, assuming the average business owner works 2,000 hours a year in their business.

Best Practice (strategy planning)Time Investment (incl. travel)
Complimentary Meeting2 hours
Annual Business Plan6 hours
4 x Quarterly Check-ins*8 hours
Annual Forecast4 hours
* Minimum frequency20 hours (1% of 2,000)

So, where will you find the time?
Planning supports efficiency. Efficiency might come in the form of less rework, less ‘paperwork’, less friction in your team, or simply more focus and higher productivity.

Putting the time in upfront for planning and strategy will give you time back and improve your bottom line in the future. It’s also about helping you define what you want from your business in general. More time with family? More time for golf? A broader product offering? To learn life-long lessons that pay off in all facets of your life? To pump business value up for your succession?

It’s not easy work. It’s challenging… and enlightening, passion-igniting, and rewarding (for both us and our clients). We’re committed to supporting our clients to make their businesses more sustainable and scalable.

Get in touch if you’d like a 60-minute complimentary meeting.

“The time to repair the roof is when the sun is shining.” – John F. Kennedy

Business tips: Writing a mission statement

You’ve had your initial business idea and written a plan. But do you know WHY you’re creating this business, or HOW you’ll deliver your end product/service? What will the company’s underlying purpose be and how will your core values drive the business?

To get these crucial elements ironed out, it’s a good idea to write a ‘mission statement’ for your startup – a short summary of the aims and values of your business.

WHAT does your business do?

The first thing to pin down is what the business actually does – i.e. at the most basic level, what is the output of your new business idea, and what is its purpose.

Defining this ‘WHAT’ element might sound simple, but describing it in a clear and concise way will help you to begin the process of completing your mission statement. A bicycle manufacturer might define their WHAT as ‘making quality bikes at great prices, for adults and kids to enjoy’. Whereas a creative agency might define their WHAT as ‘delivering creative solutions to our business clients’ design problems’.

HOW does your company do what it does?

Next, have a think about HOW you achieve what you do. How do you deliver your product or service to customers, what operations are involved and what makes your way different?

The bicycle manufacturer might have a big focus on making hand-made bikes, so their HOW could be ‘We make our bikes by hand, and to order, using our 25 years’ experience in the industry to deliver the best possible quality’. While the creative agency might say ‘We use the latest design approaches, coupled with cutting-edge design software, to bring our clients’ design to life’. Both of these statements explain the underlying operational processes in the business, and how each business delivers its product/service to the end customer.

WHY does your company do what it does?

Most businesses are great at defining the WHAT and HOW elements of their business model. ‘I make Product A using Process B’. But it can be a lot harder to define WHY you’re doing this.

Ultimately, the WHY is the most important element of your mission statement. In essence, you’re describing what drives you to do what you do. What are your big aspirations for the business, and what do you want to achieve? For the bicycle manufacturer, the WHY statement may be ‘We want to encourage our community to get on their bikes, become more sustainable and stay healthy’. And the agency may define their WHY as ‘We want to build innovation into everything we do, bringing fresh ideas to our clients’ design’.

What are the core values driving your enterprise?

Your personal values as a founder might not sound like a crucial element to think about. But any new startup is a reflection of the ideas, ambition, drive and values of its founders.

The ways in which you behave, the vision you provide for your team and the ways in which you interact with your first customers will all underline the foundation values of your new business. Think about what drives you. Is it profit and money? Or do you want to change the world in positive ways? Or provide employment and opportunities for your local community?

Bring it all together into your mission statement

If you’ve answered those four questions, then you have everything you need to create a comprehensive and useful mission statement for the business.

For example, for the bicycle manufacturer, it may look like this:

Happy Spokes Bicycles Ltd:

  • What we do: We make quality, sustainable bikes at great prices, building a range of city bikes for adults and kids aged 9 to 90 to enjoy.
  • How we do it: We make our bikes by hand, and to order, using sustainable processes and our 25 years’ experience in the industry to deliver the best possible quality.
  • Why we do it: We believe that cycling is the future. We want to encourage our community to get on their bikes, become more sustainable and stay healthy.
  • Our core values: Our 5 core value pillars are:
    • Sustainability – we strive to limit our impact on the planet and environment
    • Health – we aim to make our customers healthier and fitter
    • Craftsmanship – we believe in keeping hand-made production alive and well
    • Value – we want our bikes to be affordable to all
    • Fun – we aim to make Happy Spokes a fun community to be part of.

With your mission statement written, and a business plan under your belt, you have the best possible foundations on which to build your business enterprise.

Your mission statement can set the foundations for your company’s future.

Talk to us about your startup plans.

Don’t bet your house on the business

Landlords and suppliers can sometimes ask you for a personal guarantee on a contract.

Unfortunately, that could mean that if something goes wrong, you have put your house at risk. Here are a few ways to protect your home and your other personal assets from potential business problems.

Personal guarantees

Banks, landlords and suppliers might ask you for a personal guarantee on lending or contracts. This is a great move from their perspective, because it gives them security if you default on a loan or fail to deliver on a contract. But as the business owner, signing a personal guarantee is risky. It’s legally binding, even if you run a limited liability business, so if your business falters or there is some kind of legal dispute, you could lose it all. It’s also worth remembering that some personal guarantees can cover future loans, too, extending the risk.

Some ways to protect yourself

  • Don’t agree to the personal guarantee. Try to demonstrate that it’s not necessary, but if you can’t convince the other party, look around for another lender, landlord or supplier.
  • Negotiate better terms, such as a clear termination date for the personal guarantee, to prevent it extending into the future.
  • Consider putting your large assets – like your home – into a family trust. This is one way to protect them from personal guarantees. However, it’s not something to be done lightly. The rules around trusts are more complex than they used to be and they need real commitment to be done properly. We can help you with this, so let us know if you’re considering this option.

Before you sign any contract, and particularly one with a personal guarantee, get advice from a lawyer to ensure you fully understand all the ramifications.

You can read more about the pitfalls of personal guarantees here at the Business.govt.nz website.

Ask us about better funding options

Throughout 2022 and 2023, you can still apply for the Small Business Cashflow Scheme through Inland Revenue. It’s potentially interest-free and we can help you apply.

We can also talk you through the pros and cons of other business funding options – do give us a call or drop us a note. We’re happy to help.

The pros and cons of helping your child to buy a house

The ‘Bank of Mum and Dad’ is one of New Zealand’s largest lenders, with between half and 70% of all first-time buyers estimated to be getting assistance from their parents. Can you afford to help, what kind of help could you provide, and how should you protect yourself?

Can you afford to become a bank?

Parents like to help their kids to buy a house because it gives the kids stability and it can set them up for a brighter financial future.

But it’s important that you don’t overstretch your own finances and put yourself into a risky position. You still need enough money to support yourself in a comfortable retirement. It becomes increasingly complicated if your children fail to make their repayments or split from their partners – and if you have more than one child, how will you balance out the needs of each one? You’ll need to consider all those factors before you make a decision.

Lots of ways to help

If you do decide to support your children in their efforts to buy their first home, there are lots of ways to help, including:

  • A cash gift to help with the deposit
  • A loan to help with the deposit
  • Being a guarantor of their repayments
  • Co-owning the house with them
  • Letting them live with you rent-free while they save up

A gift is the simplest and cleanest – your money might be gone but so are your obligations. The other options all require a bit more negotiation and potential compromise.

Protect yourself and your kids

The most important factor for the Bank of Mum and Dad is protection. It’s not only for you, but also for your children. Both parties should get independent advice and ensure everything is set out clearly on paper by your lawyers. We can recommend a lawyer if you need one, or can talk to you about the pros and cons of the various options for assistance and which one could be best for you.

The COVID-19 Short-Term Absence Payment

The Short-Term Absence payment is for businesses (including self-employed) to help pay for workers who can’t work from home or attend work while they wait for the results of a Covid-19 test. To be eligible, workers need to be unable to work from home and need to miss work while waiting for their test results.

There’s a one-off payment of $359 for each eligible worker. Employers or the self-employed can apply for any worker once in any 30-day period, unless a health official or doctor tells the worker to get another test.

To apply, businesses must not be getting any of the following payments at the same time for the same worker to cover any situation that is also covered by Short-Term Absence Payment.

  • any other COVID-19 Wage Subsidy, or
  • Leave Support Scheme payments.

You cannot get more than one COVID-19 payment for the same employee at the same time.

Find out more about the Short-Term Absence Payment on the Work and Income Website.

Five steps to seamless hiring

So you’ve found the right person for the job, now what? Here are the next five steps you need to take.

Step 1: Make an offer

  • Check the candidate can legally work in New Zealand.
  • Explain the 90-day trial period, if you’re going to use one (only small businesses can).
  • Discuss the role, conditions, and benefits (hours, location, salary, training, fringe benefits, holidays, etc.).

Step 2: Sign the employment agreement

  • Give the candidate a written employment agreement that’s specific to their employee type and includes all the agreed conditions.
  • Provide them with a written role description.
  • If you’re using the 90-day trial period, tell them about it again and write it into the agreement.
  • Make sure they’ve signed the agreement before they start work.

Step 3: Get prepared for their first day

  • Make sure systems, processes, tools, and stationery are ready to go.
  • Plan out their first day and an induction process.
  • Add them to any insurance policies you might have.
  • If this is your first employee, you’ll need to register as an employer with Inland Revenue.

Step 4: Complete any remaining paperwork

  • Enrol your employee in KiwiSaver (KS1), if they’re eligible.
  • Have them complete a tax code declaration (IR330).
  • Keep a wage record showing how much you pay them.
  • Set up a holiday and leave record.

Step 5: Get them settled in

  • Explain your workplace’s health and safety procedures.
  • Show your new staff member how your systems and processes work.
  • Introduce them to the rest of the team.
  • Get their emergency contact details and give them yours.

How to deal with difficult customers

Dealing with difficult customers can be… well, difficult!

If you and your team find yourselves in less-than-pleasant shopper interactions, having a plan is useful so you are better equipped to handle these situations with ease and grace.

Prep yourself mentally – Having the right mental attitude will help prevent your buttons from getting pushed and enable you to respond in a calm and professional manner. Remind yourself that the shopper isn’t necessarily mad at you, but at the situation.

Really listen to the customer and empathise with them – Put yourself in their shoes and understand that they’re having a difficult time as well. This will help you be more patient and compassionate, and ultimately handle the situation successfully.

Be discreet – If possible, don’t deal with the situation in a public place, like the sales floor. Invite the customer to speak to you privately (such as your office) and go from there.

Be aware of your non-verbal cues – What you DON’T say speaks volumes. Be mindful of the non-verbal cues that you give off. Actions such as rolling your eyes, looking bored, and pointing your fingers, can aggravate the situation.

Compensate for their discomfort if necessary – Taking this step isn’t always necessary and depends on the situation. For instance, if the issue is due to an error on your part, can you do something extra for the customer? – such as giving a freebie as a way to apologise.

How to improve your procurement spending

One of your biggest areas of business expenditure will be buying the goods and services that are needed for the company to operate. Whether these are raw materials, wholesale goods or cloud services, you need someone to be in control of this procurement process.

Managing your procurement spending is a vital part of keeping the business cost-effective and competitive in the market. If you’re overspending on materials, or paying over the odds to your delivery partner, this can start to have a significant impact on your bottom line.

How, then, do you get on top of this procurement spending and start becoming more efficient?

5 key ways to enhance your procurement spending

Managing cashflow is all about balancing out your cash inflows against your cash outflows. If your procurement costs are high, it will be very difficult to maintain a positive cash position, so reducing your costs and agreeing better terms is all part of the procurement process.

In short, the less cash that’s burnt up in procurement costs, the better the company’s overall financial position will be. So, how do you go about reducing these costs?

Here are 5 key ideas to focus on:

  1. Reduce your base cost per item – where you’re buying in goods, one of the most important costs to consider is your basic cost per unit. This price is probably the most difficult cost to alter, but there are ways to reduce it. Get quotes from a variety of suppliers and look for the supplier that offers the best mix of value, quality and reliability, at an economical price. Negotiating with competing suppliers can help to knock the price down further, helping you cut that initial base cost and reduce your everyday spending.
  2. Cut your logistics and delivery costs – when dealing with physical goods, these items will need to be transported to your premises and/or delivered to your end customers. These transport costs are unavoidable, but can be reduced as part of the procurement process. Look for well-priced carriers and logistics providers and see if their base prices can be negotiated down. Ask about discounts for faster payment, or options for joining a preferred customer program to help reduce prices. If you can offer a long-term relationship with the carrier, this can result in greater trust and openness over time, and more potential for negotiating price reductions.
  3. Nurture the best supplier relationships – the foundation for good procurement management is building solid relationships with your suppliers. The more stable your supply chain is, and the deeper the trust between you and your supplier partners, the easier it will be to negotiate good terms, beneficial prices and flexible contracts. Nurture these relationships, pay on time and set a good reputation with these suppliers. When renegotiating prices to cut costs, this will be far easier to do with solid foundations supporting your business relationship.
  4. Reduce tax and duty costs – depending on which goods and services you’re selling, there will be certain territory-specific taxes and duties to pay when buying and transporting goods. If you engage a tax adviser with industry-specific knowledge, they’ll be able to check that you’re paying the right taxes on your goods/services and that they’re correctly categorised for taxes like VAT or GST. Working with a customs broker can also help to organise and streamline the customs process, and ensures that you’re paying the correct duty on all your imports and exports.
  5. Using tech to get in control of procurement – in the modern digital world, there are plenty of cloud-based procurement solutions to help enhance the management of your processes. Having all your procurement information in one place, accessible 24/7 in the cloud, has huge advantages. You can streamline your internal processes, manage risk more effectively and regularly check your spending against budgets, cashflow and expected expenditure. Where there are big variances, or instances of overspending, you can quickly take action to reduce the problem – by putting caps on spending, or switching to new suppliers that offer a more cost-effective option.

Talk to us about your procurement management

When you’re in control of your procurement spending, that’s good news for your cashflow, your end profits and the long-term health of your supplier relationships.

Getting in control of your budgets, expenditure and overall spend management is a big part of the procurement process, and an area where we can help guide you in the right direction.

Come and talk to us about your current procurement issues to see where we can lend a hand.

Have you got a strategy for a financially stress-free holiday period?

Christmas holiday breaks are a chance to recharge for the year ahead especially after the year we have had. We look forward to warmer weather and finally setting up an out-of-office email for the break. However, for business owners, this time is a stressful without careful cash-flow planning.

Even if you do continue to operate through the holiday shutdown season, your customers’ financial behaviour may not remain the same.

The strategies and tips shared below are generalised, however, we are here if you need to budget and prepare a cash-flow forecast. We can also help if you need assistance in applying for short term finance to get you through the break.

Why is cash-flow planning particularly important at this time of year?

Staff leave needs to be covered in addition to your normal fixed overheads like rent, creditors and tax compliance. The budget and forecasting process ensures you know your numbers and are prepared. If you are shutting down, you won’t be driving revenue during this period and sales may take time to get started again in the new year.

Here are some simple strategies that can help

  • Decide your Christmas and holiday break dates – confirm these with staff, customers and suppliers.
  • Budget and plan for annual leave – remember the pay rates may be higher than standard hourly rates, also factor in statutory public holidays.
  • Decide – if you are going to pay out leave in full at the beginning of the Christmas break or continue to pay as usual throughout the break.
  • Review your work in progress (WIP) – plan to complete jobs or services that can be invoiced and paid before Christmas (remember if you don’t invoice and get paid before Christmas, you may not see the money until mid to late January).
  • Capacity planning – There is often a rush to get everything done before Christmas, whether it’s the kitchen benchtop installed or the beauty treatment before the break, so make sure you have the capacity to maximise on this.
  • Stock-take – Do you need to order in goods now to be able to complete work in progress? Check that there is stock on hand available.
  • Making an arrangement with the Tax Office – if you find you can not make payments, it is possible to apply for an instalment arrangement. There are costs associated with this, however it may provide a solution that gets you through the holiday period. Talk to us, we can help.

Need financial support?

If you can’t make ends meet, now is the time to organise short term financial relief. Please let us know if you need any help with cash-flow forecasting, budgeting or finance applications.

Getting a Tax Break on your Insurance

One of the advantages of owning a business is the many tax deductions that aren’t available to employees. Most of these deductibles are well known, like vehicle and home office costs and other basic business expenses.

But recently we’ve been able to help out our clients with one that’s a little less well-known: income protection insurance.

Income protection insurance is tax deductible

Income protection insurance is there in case you can’t work due to a serious illness or injury. If that happens, your insurance will kick in and you’ll receive a monthly payment that covers some of your lost income (usually around 75%).

If you have income protection insurance, it may be tax deductible. Check the wording of your policy: most are tax deductible, and you pay tax on the income produced if you claim. If your policy is like this, claiming your tax back effectively reduces the cost of your cover by up to 39%, depending on your tax position.

Many business owners miss the chance to include income protection insurance on their tax returns. Sometimes they don’t know they can. But more often, the premiums come out of a personal account, lumped in with other types of non-deductible personal insurance like life and trauma cover, so they don’t get flagged as a business cost.

Other types of insurance are also deductible

There are additional types of business insurance that also have tax deductible premiums, including public liability insurance, building insurance, commercial vehicle insurance and loss of profit insurance. It’s uncommon for these to be missed on your tax return because these premiums are almost always paid by the business. But if you think we may have missed one, do let us know.

You might be able to claim a refund

A refund may be possible for more than one year if you haven’t been claiming your income protection insurance on your tax return. With some help from your insurer or insurance broker, a statement showing your payments can allow us to get this right with Inland Revenue for the past few years, and sort it out for the year ahead.

Let us know if you pay this type of insurance from your personal accounts and we can help you claim it correctly.

Give us a call, drop us a note or text us – we’re here to help!

Smart Ways to Get Rid of Excess Stock

For retailers, having excess stock will not only take up precious backroom or shelf space, but can also tie up capital and can keep you from re-investing in your business or buying things you actually need.

Excess inventory can be a result of purchasing decisions, marketing or a change in the marketplace.

However, there are a number of things you can do to sell or liquidate your slow-movers.

  • Refresh, remerchandise, and remarket your products – make them look new and fresh instore or in your marketing but be aware of associated promotional costs.
  • Double and triple-expose your merchandise — can you display in more places in order to attract attention?
  • Discount products — create a strategy around discounting so that you motivate shoppers.
  • Bundle excess stock — with complimentary or faster-moving products.
  • Use excess stock as freebies or incentives — offer low-cost items as an incentive for shoppers who spend more than a certain amount.
  • Sell them to liquidators and marketplaces — this may result in a lower return but free up space and capital for your business.

When handled properly, excess inventory can actually open up sales, customer engagement, and tax opportunities for your business. Read the full article on dealing with surplus inventory below.

Need help in your retail business? We can help you understand the numbers in order to optimise profit.

New rules for Trust Compliance

With a new top tax rate of 39% now in place, other tax rules have also been tweaked to make sure they all align.

Trusts now have new rules on disclosures, in an effort to prevent people from using trusts to avoid paying additional tax.

Previously, trusts have not needed to file financial statements or details of non-taxable transactions. This has now changed. Inland Revenue will now be collecting more information so it can keep a closer eye on how trusts are being used.

Trusts now need to provide more financial information

From April 2021 onwards, all annual returns for trusts will need to include:

  • Financial statements
  • Details of settlements
  • Details of distributions, taxable or not
  • Any other information required, like loans and transfers involving associated persons or related parties.

Charitable and non-active trusts are exempt, since they don’t need to file a return.

You can read more about the new taxation bill here.

If this looks daunting, don’t worry, we can help you work out what information is required and how you can supply it. It is vital to make sure you comply with the rules so your trust isn’t declared a sham – if that happened you would lose any advantages that the trust provides.

Compliance costs are increasing

This is a large step up in terms of what trusts must provide in order to be compliant. It’s important that you start collating this information so you can supply it to Inland Revenue. This will probably be time-consuming and may have additional costs, particularly in this first year. Hopefully it will get easier as we all learn to navigate the new rules.

If you have doubts about how to comply, we can answer your questions. It might also be a good time to review your entities and make sure your trust is working for you.

Give us a call, drop us a note or text us – we’re here to help!

Banks introduce new mortgage lending restrictions

In June this year, the Reserve Bank received approval for a new tool to rein in house prices and control debt levels: debt-to-income (DTI) ratios.

Now, some of the banks have decided to move first. BNZ has introduced a DTI for all its borrowers, and ASB has confirmed that it, too, is now applying DTI restrictions.

How does it work?

Debt-to-income ratio limits set out a maximum loan amount based on your income level. BNZ has applied a DTI limit of six, meaning that you can borrow a total of six times your income.

For example, if you earn $100,000 a year, your total home loan would be limited to $600,000. Say you were putting down a 20% deposit, that would mean you could purchase a home worth a maximum of $750,000. (With a 10% deposit, the maximum house price would be around $667,000.)

What will this mean for homebuyers?

This will make it more difficult for buyers to stretch themselves into a large mortgage, which has recently been one an important factor for those trying to get into New Zealand’s expensive property markets. RBNZ data show 25% of first-home buyers are borrowing at DTIs over six, rising to 37% in Auckland.

However, the shift toward using DTIs is also likely to be another dampening factor for house prices, particularly when combined with rising interest rates. It may help to lower prices or slow growth, which could mean house prices aren’t racing out of reach as first-home buyers try to save.

What about property investors?

Property investors are subject to the same DTI restrictions. Banks will add rental income to your personal income, but in most cases a ‘haircut’ is applied, usually at 25%. This means if your rental property earns $30,000 a year in rent, the bank would subtract $7500 as a buffer for rates, insurance and other costs. In total, your rental would add $22,500 to your income, then the bank would multiply the total by six to find a loan limit.

This may limit your borrowing significantly. It could also be important when you go to either borrow more, or refinance a loan with your bank. It’s possible they will want to bring your total lending into line with their DTI restrictions.

Talk to us about your financial position

We’re here to chat with you about your finances and lending – it can be tougher for self-employed people to secure loans, but we can work with you to present your business revenue and salary (or drawings) in the best possible light for your prospective lender.

Just get in touch, we’d love to hear from you.

New COVID-19 Framework and Business Support

The Government’s announcement on the next stage in the COVID-19 response plan introduces a new framework of measures that will commence when 90% of eligible New Zealanders are fully vaccinated.

The new framework has three levels: Red, Orange and Green. Each has different levels of restrictions. At all levels businesses will be able to operate, in some form, for vaccinated people.

The advice states, If a business, organisation or service does not wish to request proof of vaccine, they will have to operate with strict limits on capacity and space requirements. They may need to close in Orange and/or Red levels.

For more information on the levels visit the Covid 19 website.

Resurgence Support Payment doubles

From 12 November 2021, the Resurgence Support Payment will be paid fortnightly instead of three weekly.

  • Businesses can receive $3000 per business plus $800 per full-time employee (FTE), up to 50 FTE (up from$1500 plus $400 per full-time employee)
  • The maximum fortnightly payment is $43,000.
  • If you are self employed, or a sole trader you can receive a payment of $3,800.
  • The eligibility criteria remains the same.

The Resurgence Support Payment will continue to be available to businesses anywhere in New Zealand until Auckland moves to the new COVID-19 Protection Framework.

Wage Subsidy Scheme

Applications for the fifth round of the August 2021 Wage Subsidy are now open. You can apply until 11:59pm 28 October 2021. The payment rates and eligibility criteria remain the same.

Additional support for Auckland businesses

Businesses in Auckland will be able to apply for up to $3,000 worth of advice and planning support, and then receive up to $4,000 to implement that advice. This will no longer require a matching contribution and will be delivered through the established Regional Business Partner Network.

There will also be funding available for businesses to apply for mental health support for their employees.

We are here to help

If, like so many businesses you have been adversely affected, talk to us about how we can help. As your accountant, we’ll review your financial position, assist with cashflow planning, advise you on which schemes you’re eligible for, and will help you to produce the relevant financial information that’s needed when making a loan or grant application.

The months ahead and first quarter of 2022 will be a tough time for many business owners, so reach out now and let us help you get the financial assistance and funding you need.

Redefining success

If there’s one positive to take from the events of the last two years, it’s the opportunity to consider what’s important. For those of us in business, it’s important to redefine our plan and goals that ensure the business delivers our definition of success. The natural extension, for those with team members, is to revise what the business needs to deliver to the team.

Personal success

Your definition of personal success will be different to what it was before the world was turned upside down by a global pandemic. For example, wanting to be able to travel the world, regularly upgrade the car, and enjoy frequent nights out.

To secure this lifestyle, your profit target might’ve been $100,000 and you might’ve been working 60 hours per week and never finding the time to be with family or doing that much-needed exercise.

Then lockdown happened and many of those goals were no longer possible; overseas travel was replaced with the excitement to just get out of the house. The upgraded car goal was replaced with a bicycle so you could get out and exercise, and a night’s entertainment involved a board game or an evening of Netflix!

As lockdown restrictions were reduced or removed, you emerged with a new clarity about what’s really important.

Let’s say you revise your budget and can get by with $80,000 from the business. Your revised personal definition of success might then be $80,000 income, 5 days’ work per week, and time to be with family and stay fit and healthy.

Business Success

The business should give you the cashflow you need personally AND the discretionary time to enjoy the lifestyle you choose. Using the example above, your previous personal definition of success meant you were working 60+ hours per week, with little time for family or exercise.

With your revised personal definition of success of $80,000, you can reduce the pressure needed on the business to deliver that old level of profit. If all business costs remain constant, it could be that sales can drop by 10% and you’ll still achieve what you need from the business. Lowering the sales target could free up your time to make a better plan for a smarter business, perhaps with higher margins and reduced overhead costs.

That plan is your revised definition of business success which will give you certainty that you’ll achieve your revised personal definition of success.

Team success

If you have employees, the achievement of your business success is highly dependent on how well your team performs. It’s likely your team members have all reflected on what success looks like for them, just as you have. Studies show that a happy and engaged team with a strong workplace culture will out-perform a team driven using the carrot and stick method.

Redefining success for your team should include things like:

  1. Creating and living into an agreed set of Core Values.
  2. Regular performance reviews and goal setting (i.e. the team defining their version of success in their role).
  3. Flexible working arrangements.
  4. Reviewing roles, responsibilities, and progression opportunities.
  5. Reviewing remuneration, holiday, and perks.

This will give you a clearer understanding of the revised definition of success for your team.

Next steps

Follow these steps to pull these three definitions of success together:

  1. Create a revised personal budget and define your personal definition of success.
  2. Update your Business Plan, setting out the minimum viable sales needed to achieve the income you want and the goals and actions to ensure you get there.
  3. Update your annual financial forecast.
  4. Set up a system for ongoing reporting and accountability.
  5. Ask your team to complete a reflection questionnaire, then hold a performance review and goal setting meeting with each team member.

There is no magic here. These steps have always been important. They’re likely to need a review in the current climate.

Get in touch with us if you need help redefining success or implementing strategies to achieve your definition of success.

Rental Tax Changes: Details Announced

The Government has now released the draft legislation around the removal of tax deductions on loan interest for rental properties. Previously, interest payments could be claimed as a business expense and taxed accordingly, giving property investment a tax advantage.

Now, properties bought from April 2021 onwards will not be able to claim any tax deductions for the interest paid on the mortgages. For all existing rental properties, including holiday home rentals, the tax deductibility is being phased out over four years.

Changes take effect from 1 October

Until October, the old 100% interest tax deductibility is in place. Then on 1 October this year, rental property tax deductibility reduces to 75%: you can still claim three-quarters of your interest payments as a business expense and get a tax advantage. The 75% rate remains in place until 31 March, 2023.

For the following financial year (1 April 2023 to 31 March 2024), you’ll be able to claim 50% of your interest payments as a business expense against your rental income. Then it drops to 25% for the next financial year (1 April 2024 to 31 March 2025). From 1 April 2025 onwards, no interest deductibility will be available.

There are some exemptions, including:

  • Your main home
  • New builds
  • Commercial property
  • Farmland

You can read the new legislation here or a simpler summary of the changes here.

What should you do?

To assess how much impact this will have on your situation, we can calculate the difference this is likely to make to your overall gains or losses in the years ahead. Our forecasts will be a good guide, but the exact situation will vary depending on several other factors, too. For instance, as interest rate deductibility reduces, you may also find that rents increase to help you meet the higher costs. However, your mortgage interest payments may also go up, if (as seems likely), interest rates increase over that time.

Ideally, you should think carefully about your rental properties and whether they will still be fulfilling their role in your financial strategy. You might choose to keep them – switching from interest-only to principal-and-interest repayments could be a way to start reducing your interest costs over time. Or you could sell up and invest the proceeds somewhere else.

Talk to us to get a better understanding of what your position will be when these tax changes come into effect, so you can make smart decisions about your financial future.

Could a 4-day week be a good fit for your team?

The pandemic has acted as an impetus for reflection, with many workers and business people reassessing the hours they work and the priority that work has in their lives.

A survey from Slack showed that 72% of respondents would prefer a hybrid approach to work – i.e. a mix of remote and office work. But there’s also a growing belief that we should be working fewer hours too and aiming for a ‘4-day week’. This would mean less time in the workplace and more time with our friends and families, with a greater level of underlying happiness as a result.

But do your people want to work fewer hours? Is the company ready to cope with a reduced staff on hand to get the job done? And what is the overall impact of working a shorter week?

The advantages of a 4-day week

The suggestion of a 4-day week is something that’s been around for a while, but increasingly there’s a ground-swell of support for the idea of working shorter hours and achieving a better work/life balance as a result.

In Iceland, 2,500 workers (1% of the total Icelandic population) took part in a trial of the 4-day week between 2015-2019. Most workers moved from a 40-hour week to a 35 or 36-hour week, giving them one extra day to focus on things outside of the workplace. The trial was a big success and has resulted in 86% of Iceland’s workforce now working reduced hours.

As a business owner, you’re no doubt already thinking ‘But how can my business still function if my employees are working less hours and are being less productive?’. But the interesting outcome was that productivity wasn’t negatively affected by this move to reduced hours.

So, could a 4-day week actually be a good fit for your team?

  • Your employees are just as productive – a 4-day week was trialled by New Zealand company Perpetual Guardian and the results were surprising. After spending two months testing a 20% shorter week, they found that their employees were ‘happier, more focused, and producing the same amount of work’. The Icelandic trial found the same result, that workers were equally as productive, with no drops in output, when working for only 4 days in the week.
  • Your team still earns the same money – one potential worry for your employees is a drop in pay if they are working less hours. But under a 4-day work scheme, you continue to pay your team the same wages or salaries. So, although your employees are working less hours, there’s no drop in their income and no resulting money worries.
  • Your team is happier and more engaged – results of 4-day week trials globally have shown that employees on reduced hours are happier, more engaged and more energised for their work. So, rather than pushing your team to work a 40+ hour week and risking fatigue, burnout and disengagement, you ease off on the throttle. This give your employees a less pressurised work environment and a better level of happiness. And, as we know, a happy workforce is also a productive workforce.
  • A more sustainable business model – with your people spending less time in the office, factory or workspace, your business will be using fewer resources – and having less of an impact on the planet. Your utility bills will reduce, you’ll need fewer office supplies and your people won’t be commuting as frequently – all of which is great for your carbon footprint and the overall sustainability of your business.

Talk to us about the financial impact of a 4-day week

Adopting a 4-day week does have a range of different benefits for your employees. And creating a happy, productive and engaged workforce is always a good thing to achieve.

But can your business still turn a profit while adopting a reduced working week?

If you’re concerned about the financial impact of a 4-day week, come and talk to us. We can look at your sales and revenue figures, alongside your staff utilisation numbers, to show you how your margins can remain the same (or even higher) by adopting a reduced working week.

Can companies claim home office expenses?

Sole traders using home offices for business have long been able to claim deductions for home office expenses. Now, through lockdowns and increased accommodations for work-life balance, many businesses have employees working full or part-time from home. This raises questions about whether companies can claim home office expenses.

If a company’s shareholder or director runs the company’s business through a home office and pays all expenses relating to the home office, Inland Revenue does not consider the company has incurred any expense. A company cannot claim a deduction for home office expenses, say in the home of a shareholder, unless it incurred the actual cost.

A company may claim a deduction where:

  • the expense relates to earning business income
  • the expense was incurred in the same income year the deduction is claimed, whether the company paid the provider, or reimbursed the homeowner.

If the company reimburses an employee (or shareholder employee) for home office expenses, the reimbursement is exempt income for the employee or shareholder employee.

The owner of a look-through company (LTC) is not considered to be a shareholder employee, though, under certain conditions, they can be considered to be an employee. If LTCs reimburse employees using their home office for work, the reimbursements are tax exempt. An owner of a look-through company can claim for home office expenses in their own right, provided they can prove the expenditure relates to their LTC income.

Keep good records, including any agreements allowing the company to use the home.

Call us for advice.

COVID-19 Business Support – New update

It’s important to keep current. Catch up with the detail below, including changes to resurgence supportwage subsidy payments and working from home (WFH) costs and reimbursements.

Let us know if you’re worried about not being able to pay your tax on time, if your cashflow is dangerously low, or if you need access to capital. And if you’ve taken advantage of tax relief or business support measures, make sure your records are in good shape to support your tax return.

  • Consultancy support 
    Businesses had access to free professional consultancy services through Regional Business Partners (RBP) with tailored specialist support for business continuity planning, finance and cash flow management, HR and staffing issues. COVID-19 Business Advisory Funding has been fully allocated. The RBP can advise on what other support is available.

  • Debt hibernation 
    The business debt hibernation scheme helps businesses manage their existing debts until they can start trading normally again. It allows qualifying businesses to defer debt repayments by up to 7 months. The scheme has been extended to 31 October 2021.

  • Depreciation 
    From the 2020/21 income year onwards, depreciation is allowable for commercial and industrial buildings. For a limited period, the low-value asset threshold for depreciation increased from $500 to $5,000. For items that fall below the threshold, the depreciation loss is the item’s cost. Above the threshold, items must be depreciated using the diminishing value or straight-line method. The increase allowed the immediate expensing of assets that cost less than $5,000 and that were purchased between 17 March 2020 and 16 March 2021. For assets purchased on or after 17 March 2021, the threshold permanently increases from $500 to $1,000.

  • Insolvency support 
    The introduction of a ‘safe harbour’ from sections 135 and 136 of the Companies Act 1993 provided relief to company directors facing significant liquidity problems because of COVID-19. This temporary provision expired on 30 September 2020 but may be reinstated by regulation if required.

  • Leave support 
    The Leave Support Scheme (LSS) is available for employers, including the self-employed, to help pay employees who need to self-isolate and can’t work from home. It provides a 2-week lump sum payment of either $585 per week for full-time workers, or $350 per week for part-time workers. A short-term absence payment was added to cover eligible workers (including self-employed) needing to stay at home while awaiting COVID-19 test results. It provides a one-off (once per 30 days) $350 payment. It also covers parents, caregivers, household members or secondary contacts of the eligible worker awaiting test results. You cannot get more than one COVID-19 payment for the same employee at the same time from Work and Income.

  • Loan products 
    The Business Finance Guarantee Scheme supports lenders by the government taking on the default risk of up to 80% of the loan. Participating lenders can provide new loans, increased limits to existing loans or a revolving credit facility to eligible businesses. The scheme was extended to June 2021 with additional availability and flexibility. Be aware that the Government guarantee does not limit your business’ liability for the debt. If your business defaults on a scheme loan, the lender will follow its normal processes to recover the debt. The Small Business Cashflow Loan Scheme grants eligible businesses an interest free loan (up to a capped maximum), if they repay it within two years. The scheme has been extended, broadening eligibility, and extending its availability to 31 December 2023. Businesses or organisations that have fully repaid their loan before the end of 2023 can re-borrow.

  • Loss carry-back 
    A temporary tax loss carry-back scheme, limited to a 3-year window, means losses in the 2020- or 2021-income years can be used to offset profits made the year immediately before. If you want to use this option, you need to be eligible and let Inland Revenue know you want to elect into the scheme. If you’re expecting a tax loss for the year ended 31 March 2021, you might be eligible for a refund of provisional tax previously paid for the 2020 year. There has been discussion about introducing a permanent scheme but there’s no further news on this yet.

  • Loss continuity rules 
    These allow tax losses to be carried forward. Up till now, if a company had more than a 51% change in ownership it couldn’t keep its tax losses. As raising capital may result in a change to the existing shareholder structure, companies wanting help need flexibility to access capital and to carry losses forward to offset income when they return to profit. Proposed new rules are expected to apply for the 2020/21 and later income years with a ‘same or similar business’ test, meaning the business must continue in the same or a similar way it did before ownership changed. Inland Revenue will be alert to prevent loss trading.

  • Provisional tax 
    The RIT threshold for provisional tax increased from $2,500 to $5,000 from the 2020/21 tax year. This allows small businesses to retain cash for longer and reduces the number of provisional tax taxpayers. If you are a building owner, you can adjust provisional tax payments in anticipation of additional deductions available as depreciation for commercial and industrial buildings was reintroduced from the 2020/21 income year. If your business is affected by COVID-19 and you need to re-estimate your provisional tax as your income falls short of the estimate and provisional tax has been overpaid, it may be possible to arrange early refunds.

  • Research and Development (R&D) 
    Start-up companies are able to cash-out their tax losses arising from eligible R&D expenditure and avoid carrying the losses through to the next income year. The rules around R&D expenditure are detailed and eligible R&D expenditure requires approval from Inland Revenue. If you want to claim under these rules, you need to look at this sooner rather than later, and have good records of such expenditure.

  • Resurgence support 
    The resurgence support payment (RSP) is available to help businesses directly affected when there is a move to Alert Level 2 or above for a week or more, especially relevant to sectors like hospitality and events, who face particular disruption as Alert Levels change. Businesses can apply to receive the lesser of:
    • $1,500 plus $400 per fulltime-equivalent (FTE) employee, up to a maximum of 50 FTEs, or
    • Four times (4x) the actual revenue drop experienced by the applicant.The maximum payment is $21,500. Eligible businesses must have experienced at least a 30% drop in revenue or capital-raising ability over a 7-day period after the increased alert level. Where a business is one of a group of commonly owned businesses, that drop also needs to be present across the commonly owned group as a whole.Eligible businesses must have been in business for at least 6 months to apply. New eligibility criteria were introduced on 9 September 2021 and organisations that have been in operation for at least 1 month prior to the Alert Level increase on 17 August 2021 may now be eligible if they meet all the other eligibility criteria. There is also provision to apply for businesses still in a start-up phase (‘pre-revenue businesses’), that have taken active steps towards being market-ready while not yet trading.Applications are still open for the RSP for the alert level increase announced on 17 August 2021. Businesses affected by higher COVID-19 alert levels will be able to apply for further resurgence support payments, from Friday, 17 September 2021. There will be another 2 payments after that, 3 weeks apart, so long as the conditions that trigger the RSP apply.

  • Short-term absence payment 
    See Leave support

  • Tax deadlines 
    Inland Revenue has discretion to grant extensions to filing dates for some income tax returns. Extensions can’t be granted for GST and PAYE returns, but late filing penalties may be remitted. Under limited circumstances, late payment penalties may also be remitted.

  • Tax debt 
    If you are unable to pay tax by the due date, Inland Revenue has discretion to write-off penalties and interest. Contact them to indicate when tax can be paid, or request instalment arrangements. You may be eligible for a UOMI write off.

  • Tenants and landlords 
    Temporary law changes were made to support tenants unable to pay rent and landlords unable to meet mortgage payments. These made it easier to retain lease arrangements and get back to business as usual after the pandemic, giving parties more time to fulfil their payment obligations or negotiate temporary changes to agreements or payment plans. These temporary changes have largely ended.

  • Wage subsidy 
    The wage subsidy scheme (WSS) ensures employers can keep paying their employees, and workers continue to receive income, and stay connected to their employer, even if unable to work their normal hours. The wage subsidy scheme will be in place if there is an escalation to Alert Levels 3 or 4 anywhere in New Zealand, for 7 days or more.

  • Wage subsidy August 2021 
    Eligible employers and self-employed anywhere in the country may apply for the WSS if they expect a loss of 40% of revenue because of the alert level increase announced on 17 August. The WSS rates have increased. Businesses will be eligible for $600 per week per full-time equivalent employee and $359 per week per part-time employee, paid as a 2-week lump sum. Applications opened on Friday, 20 August 2021, closing on Thursday, 2 September 2021. The scheme now requires businesses to reapply for each fortnightly payment, unlike the 2020 scheme. Applications for the next fortnightly payment opened from Friday, 3 September 2021. A third round opens at 9 am on Friday, 17 September.

  • Wage subsidy tax implications 
    The wage subsidy is considered excluded income to businesses and is also GST exempt. When passed on as wages, businesses don’t get a deduction for income tax purposes. Keep comprehensive records of wage subsidies received and passed on to employees, as well as any subsidies your business subsequently repaid, to be prepared for any adjustments required in your tax return.

  • Working from home (WFH) costs and reimbursements 
    The timeframe for tax-exempt reimbursement payments made by employers to employees for WFH now extends to 31 March 2023. Make sure your records have enough detail to show:
    • what period these payments relate to
    • payments comply with requirements for qualifying payments to be treated as exempt income
    • where some payments are exempt and others taxable and where some portions of a payment are exempt but others are taxableNote that:
    • WFH payments claimed between 17 March 2020 and 31 March 2023 allow an additional $15 per week, per employee, to be exempt income for other WFH expenditure, recognising potential increases in household costs and depreciation loss on existing depreciable assets (i.e. not in relation to telecommunications costs)
    • For telecommunications devices/plans, staff reimbursements are exempt income up to $5 per week. If reimbursement is above this amount, the exempt amount is 25% if the device/plan is used partly, 75% if used mainly, or 100% if used exclusively for employment purposes
    • WFH payments for telecommunications devices/plans claimed from 1 October 2021 to 31 March 2023 allow either a $20/week reimbursement, per employee, or if the device is used mainly for work 75% of telecommunications costs plus $15, or if partly for work 25% of telecommunications costs plus $15 to be exempt income for other WFH expenditure.
    • payments may be tax exempt for reimbursing acquisition of furniture or equipment when WFH to reimburse depreciation on the item. The payment will typically be for the cost of the asset and the payment will still be deductible to the employer. Note the $5,000 low-value asset threshold applying between 17 March 2020 to 17 March 2021 applies here.

  • Write-offs 
    Ordinarily, a bad debt must be written off by the end of the tax year. For the 2020 year, the timeframe to write off a bad debt and be able to claim a deduction for that income year was extended to 30 June 2020. This is subject to conditions. Make sure your records for the 2020 and 2021 years reflect any write-offs for bad debts for the relevant period and have sufficient detail to justify the write-off.

Covid-19 Update – Level 3

As areas of the country have moved to Alert Level 3, all of our team continue to work remotely, helping you to get through these challenging times and stay ahead. During Alert Level 3, you can still drop your information in our after-hours mailbox at 16 Bell Street, Whanganui if you are unable to send it electronically and we will process any information received ensuring we continue working with you.
 
We have provided an update of the latest changes below. 
Government Support

Wage Subsidy Scheme (WSS): To help businesses keep paying staff and protect jobs. 

Applications for the initial Wage Subsidy close at 11.59pm on Thursday 2nd September. A second, two week payment will be available from Friday 3rd September at 9am. See below the criteria for the second Wage Subsidy.  The second wage subsidy is known as Wage Subsidy August 2021 #2Businesses that applied for the initial Wage Subsidy payment can apply for the second Wage Subsidy, so long as you meet all the eligibility criteria. You can apply two weeks after your previous application. If you applied on 23rd August, you can apply for the second Wage Subsidy on 6th September.Businesses that didn’t apply for the initial Wage Subsidy can apply for the second Wage Subsidy from 3rd September 2021, providing you meet all the eligibility criteria.Businesses must demonstrate a 40% decline, or predicted decline in revenue for the period of 31st August to 13th September 2021, compared to a typical 14-day period over the last 6 weeks prior to lock down on the 17th August 2021. Payment is made as a two week lump sum at:$600 a week for each full-time employee retained (20 hours a week or more)$359 a week for each part-time employee retained (less than 20 hours a week).You must have consent from employees to submit their detailsApplications are not able to be tracked once lodged but timeframes are expected to be up to 3 days (while MSD verify staff records to IRD records). Further information on the WSS can be found here.
Resurgence Support Payment (RSP): To help support businesses or organisations with one-off costs due to a COVID-19 alert level increase. Businesses can have both the RSP and WSS. Available if firms incur a loss of 30 percent of revenue as a result of the alert level increase.Up to $1500 plus $400 per full-time equivalent employee (maximum of 50 full-time employees).On Friday the 3rd September 2021 the Minister of Finance announced a change to the eligibility criteria for the (RSP). Businesses and organisations that have been in operation for at least 1 month prior to the Alert Level increase on 17 August 2021 will now be eligible for this payment. The original criteria was 6 months.
Other support available: These two subsidies have been available throughout and are still available; Leave Support Scheme (LSS): The Leave Support Scheme provides a two-week lump sum payment of either $585.80 per week for full-time workers, or $350 per week for part-time workers, who must self-isolate and cannot work from home.Short-Term Absence Payment (STAP): The Short-Term Absence Payment (STAP) provides a one-off (once per 30 days) $350 payment for workers who must miss work due to a COVID-19 test and cannot work from home.For more information please keep visiting the COVID-19.govt.nz for up-to-date information. Or of course just get in touch with us.

Law Changes

Mandatory Face Masks/Coverings: As of 1st September you legally must wear a face covering if you are a customer or an employee involving customer contact at a business or service operating at Alert Level 3. Police can enforce this rule. Learn more about mandatory face masks here.

Mandatory Recording of Visitors: Mandatory record keeping comes into effect from 11.59pm on 7th September 2021. Everyone aged 12 and over legally must keep a record of where they have been when visiting certain places so contact tracing can happen quickly. You must do this at all Alert Levels. Click here for advice for businesses.

Look After Yourself
Hopefully Level 2 won’t be too far away. However, the longer these lockdowns go for, the more important it is to look after yourself and those around you. Need support? Check out this resource for some ways to boost your mental wellbeing and that of loved ones. A reminder there is also the Xero Assistance Programme (XAP) still available to use. Xero customers on a starter, standard or premium plan can access free and confidential counselling and resources through the programme.

We Are Here To Help
If you need any support with applying for the above subsidies or have any questions regarding your eligibility please get in touch with us.